Agilent Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Agilent Technologies second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode, so if anyone should require assistance during the call, please press star, then zero on your touchtone telephone to reach an operator. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Oprah Dinkroff, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Liz. And welcome, everyone, to Agilent's second quarter conference call for fiscal year 2019. With me are Mike McMullen, Agilent's President and CEO, and Bob McMahon, Agilent's Senior Vice President and CFO. Joining in the Q&A after Bob's comments will be Jacob Tyson, President of Agilent's Life Science and Applied Markets Group, Sam Raha, President of Agilent's Diagnostics and Genomics Group, and Mark Doak, President of the Agilent CrossLab Group. You can find the press release, investor presentation, and information to supplement today's discussion on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year. References to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of April 30th. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now I would like to turn the call over to Mike.

Thanks, Ankur, and thanks for joining our call today. Our Q2 results are mixed. On one hand, we continue to deliver strong growth in two of our three businesses, On the other hand, our LSAG business is experiencing unexpectedly soft market conditions. Despite revenue below our expectations, the Agilent team delivered solid earnings with EPS of 71 cents at the midpoint of our guidance. This represents 9% EPS growth over last year. We also delivered our 17th consecutive quarter of adjusted operating margin expansion. For the quarter, total revenues were $1.24 billion, representing 4% core growth. Let me break that down. Performance was led by our Aspen Cross Labs group, with core growth of 9%. Our Diagnostics and Genomics group delivered 6% core growth, while our LSAG business declined 1%. There were two key market factors observed in the latter part of the quarter that contributed to the LSAG revenue shortfall. were experiencing a slowing of instrument orders in China. The second factor is tied to more general slowdown in orders from Big Pharma. I'd point out that this slowdown became apparent to us at the beginning of April. Let me explain this in a little more detail. In China, our overall business grew 3%, driven by double-digit growth in ACG. However, our LSAG business declined by 1% during the quarter. There are two major factors impacting our China LSAG business. First, the recovery in the food market has not yet materialized. Government labs have not yet resumed purchasing at the levels we had previously seen. Second, the Chinese government 4 plus 7 initiative to lower generic drug prices is having a greater than expected impact on small molecule pharma. Consequently, we're lowering our revenue expectations in China this year. China does, however, remain an important long-term growth market for us. The other factor affecting LSAG growth is moderating global demand in small molecule pharma. We've seen several large accounts delaying replacement purchases. In contrast to small molecule pharma, we continue to see strong global biopharma demand. While overall growth declined 1%, there are positive signs in other LSAG end markets. Demand remains strong in the environmental forensics and biopharma markets, with solid results in chemical and energy. You'll recall we strengthened our leadership in gas chromatography with the recent launch of the new 8860-8890 GCs. Since the launch, we're very pleased with the stronger-than-expected customer demand we've seen. We also have some other very exciting new products. In April, we introduced the new Agilent 6546 LC-MS QTOS system, This system is tailored to environmental, metabolomics research, and food testing laboratories, providing the ability to acquire high-resolution data across an unprecedented dynamic range. Consumers can simply see more compounds and analyze them more quickly with this new offering. In addition, during the quarter, we also introduced a unified, purpose-built portfolio of cell analysis products targeting cancer immunotherapy with the addition of a CO bioscience. This offering enables research in this fast-growing segment. Our cell and house business continues to deliver double-digit growth. While we're facing soft market demand in our LSAG business, we remain confident in the strength of our portfolio and believe we are well-positioned to continue winning in the market. Now, I'd like to share more detail about the other two businesses. The Agilent Cross Lab Group continues to deliver excellent results. growing 9% on a core basis. Demand is broad-based across all regions. This reflects the market-leading value of our portfolio and differentiated customer experience. In China, the ACG business grew in the mid-teens. The team continues to execute on the strategy of leveraging Agilent's large instrument install base. We also continue to expand our services footprint in emerging cities and tailor our consumables portfolio to the local market. The Diagnostic Genomics Group delivered a solid quarter of 6% core revenue growth. Regional demand is led by strength in the Americas. Our pathology-related businesses grew high single digits. Previously announced large competitive wins, along with continued strong demand for our antibodies, and our companion diagnostic services are driving our growth in that segment. Agilent also received expanded FDA approval for our PD-01 IHC companion diagnostic, for metastatic non-small cell lung cancer. This companion diagnosis would now be used to identify a broader range of patients who may qualify for first-line treatment with K-TRUDA. The NASB business continues delivering strong performance with mid-teens growth. We are on track to bring our second facility online. We anticipate the initial production of GMP-grade APIs by the end of fiscal 2019. Material revenue contributions are expected in fiscal year 2020. Looking ahead to the second half of the year, we're confident that the momentum will continue in our ICG and DGG businesses. For our LSAG business, our outlook for the second half is tempered by our view of continued soft market conditions. As a result, we revised our outlook for the full year, reaffirming our prior EPS commitment while lowering revenue growth. Bob will describe this in more detail, but first, just a few summary comments. We now expect to deliver core growth of the year between 4% and 5%. While we're facing market headwinds in our LSAG business, our full-year earnings guidance remains intact. The Agile team remains firmly committed to meeting our current guidance for earnings growth. Our guidance reflects confidence in the strength of the overall Agile business model and our ability to drive solid earnings results. Thank you for being on the call today and look forward to answering your questions. And now I'll hand off the call to Bob. Bob?